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Does QE Cause Wealth Inequality?

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Re: Does QE Cause Wealth Inequality?

#161

Post by bradleyjg »

nybble41 wrote: post #58
bradleyjg wrote: post #13

Earlier quoted context omitted.

> QE requires low interest rates as I understand it. It’s the other way around. QE lowers interest rates; that’s the main purpose. The idea is that low interest rates force investment in risky ventures (since safe ones are offering low yields) and those risky investments on net will generate excess economic growth.

The problem being, of course, that those risky investments were considered "risky" for a reason. A fair assessment, in the absence of forced incentives, would say they're more of a net liability than a net asset. Better than having your funds confiscated, perhaps, but otherwise not worth considering. When they fail (as many of them inevitably will) those failed investments result in waste and economic decline , not g…

I wouldn’t say that people are entitled to a safe investment option that offers a decent yield, but on the other hand I’m also skeptical of more than a decade of what was supposed to be extraordinary intervention.

Re: Does QE Cause Wealth Inequality?

#162

Post by whimsicalism »

Clubber wrote: post #149
whimsicalism wrote: post #113

Earlier quoted context omitted.

1. If you get higher interest rate returns, how do you think that is being paid for if poor people aren't getting higher rates? 2. Unexpectedly lower interest rates increase employer competition in the labor market, raising wages. This is well studied. 3. The quality of life of a poor person in the US is unimaginably better than that of someone ranked relatively the same 100 years ago. That is due to investment. Deny…

>1. If you get higher interest rate returns, how do you think that is being paid for if poor people aren't getting higher rates? Loans to business, home loans, etc. Education loans really weren't a big thing because education used to be subsidized. Also, poor people aren't the only source of ROI on loans. They're quite lucrative though because they seldom are able to pay the principal and are an endless source of int…

Not going to keep responding to someone who is skeptical of the claim that life for the average person is better in 2019 than it was in 1919. Our starting points are so off that I don't think we could have a productive conversation.

Take care, believe what you want I guess.

Re: Does QE Cause Wealth Inequality?

#163

Post by wonderwonder »

88913527 wrote: post #82
nly wrote: post #57

Earlier quoted context omitted.

Compounding returns makes growth exponential. When you look at it that way the rich guy is just further up the curve, but you're on the same trajectory. In your simple example (25% returns annualised) he's only 31 years ahead! Don't you just feel better now?

Let's do the math for compounding returns. Suppose 7% growth for 30 years, same Person A and B: $1000 * (1.07 ^ 30) = 7,612.25 $1,000,000 * (1.07 ^ 30) = 7,612,255.04 Proportionally, It's still 1000:1. So we see compounding doesn't change the relative difference. But now we're getting to absolute gap that's simply uncoverable by wage income, unless you can land in the professional management class, which effectively…

This is 100% correct, however for the person with less money they are going to be spending a much larger percentage of their funds each month than the richer one. So in reality the richer person will accelerate ahead and the ratio will get worse for the poor person every year.

Re: Does QE Cause Wealth Inequality?

#164

Post by adam_arthur »

cies wrote: post #119
bradleyjg wrote: post #13

Earlier quoted context omitted.

> QE requires low interest rates as I understand it. It’s the other way around. QE lowers interest rates; that’s the main purpose. The idea is that low interest rates force investment in risky ventures (since safe ones are offering low yields) and those risky investments on net will generate excess economic growth.

> those risky investments on net will generate excess economic growth. Economic growth comes from increased consumer spending. Not from investment. We will all learn that lesson very soon.

It's a combination of both.

Consider Rivian which just went public at ~80B valuation (on revenue of 0, mind you). They raised ~10B dollars through investor capital and can now use that to create factories, hire employees and so on. Further, they can issue more shares down the line to finance their growth.

I agree that consumer demand is required to grow aggregate revenues/earnings, and create a stably higher economy. But in theory using investment capital to invest into productive capacity puts upwards pressure on wages, thus longer term consumption.

However, when capital is misallocated it may not result in productive growth.

Re: Does QE Cause Wealth Inequality?

#165

Post by ruined »

xxpor wrote: post #156
ruined wrote: post #151

Earlier quoted context omitted.

payday loan APR is generally around 300% to 700%. this is not a rate set by a market, it is the claw of a predator, useful only to deal a killing blow.

A lot of states have capped those rates relative to prime.

which simply reinforces the idea that it's not a market. credit cards, too, are generally capped.

the rate always maxes out the legislated cap. so it's not really dependent.

Re: Does QE Cause Wealth Inequality?

#166

Post by Ericson2314 »

whimsicalism wrote: post #140
Ericson2314 wrote: post #133

Earlier quoted context omitted.

The black plague eventually broke feudalism, and if Manchin doesn't completely cuck us Covid-19 might eventually break neoliberalism.

not in eastern europe it didn't :) feudalism was ongoing when the february revolution occurred.

Yes that was not suspicious material. We'll see if there is a revolution in the freed up land of the next world war's peripheral looser, whether they are more appropriately developed.

Re: Does QE Cause Wealth Inequality?

#167

Post by bradleyjg »

cies wrote: post #119
bradleyjg wrote: post #13

Earlier quoted context omitted.

> QE requires low interest rates as I understand it. It’s the other way around. QE lowers interest rates; that’s the main purpose. The idea is that low interest rates force investment in risky ventures (since safe ones are offering low yields) and those risky investments on net will generate excess economic growth.

> those risky investments on net will generate excess economic growth. Economic growth comes from increased consumer spending. Not from investment. We will all learn that lesson very soon.

That’s a pretty silly thing to say in such a blanket way. R&D creates entire new segments of the economy.

Re: Does QE Cause Wealth Inequality?

#168

Post by gruez »

whimsicalism wrote: post #94
bhupy wrote: post #60

Earlier quoted context omitted.

That's the logical hypothesis, but the article we're commenting on seems to show that it's more complicated. FTA: "The logical case for why the Fed’s activities cause wealth concentration is that low interest rates and high levels of QE tend to boost asset prices, such as stocks and real estate, which are primarily owned by the wealthy. By making homes and stocks more expensive and unaffordable, it widens the wealth…

It seems like many people in this thread are missing that poor people are often underwater in debt, so lower rates help them. There is a reason most of the farmer uprisings in the early US were over wanting more inflation rather than deflationary policy that made the value of their debt payments higher.

> It seems like many people in this thread are missing that poor people are often underwater in debt, so lower rates help them.

...only if inflation rates are on the way up (ie. higher than expected). on the way down (ie. inflation is lower than expected), they lose out.

Re: Does QE Cause Wealth Inequality?

#169

Post by keymone »

88913527 wrote: post #82
nly wrote: post #57

Earlier quoted context omitted.

Compounding returns makes growth exponential. When you look at it that way the rich guy is just further up the curve, but you're on the same trajectory. In your simple example (25% returns annualised) he's only 31 years ahead! Don't you just feel better now?

Let's do the math for compounding returns. Suppose 7% growth for 30 years, same Person A and B: $1000 * (1.07 ^ 30) = 7,612.25 $1,000,000 * (1.07 ^ 30) = 7,612,255.04 Proportionally, It's still 1000:1. So we see compounding doesn't change the relative difference. But now we're getting to absolute gap that's simply uncoverable by wage income, unless you can land in the professional management class, which effectively…

now account for $500 cost of living. or $100, which is lower than almost anywhere in the world. A will be broke while B won't even notice.

Re: Does QE Cause Wealth Inequality?

#170

Post by endymi0n »

TIL that „The Federal Reserve […] is an institution that is mostly privately owned by banks“

Maybe my view is too European on that, but are Americans aware their federal money supervision system is run by banks and how can they possibly be okay with that?

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